The trade group the Entertainment Software Association—based in Washington and including members such as Nintendo, EA and Disney Interactive Studios—has filed a challenge of Chicago’s “Cloud Tax” on online entertainment in Cook County Circuit Court.
According to the Chicago Tribune, the group seeks to stop enforcement of Chicago’s Amusement Tax on electronic entertainment. The tax—the result of a 2015 reinterpretation of the law—now includes taxing video games and audio and video streaming services.
“In the 21st century, a 9 percent tax that was originally placed on carnivals, bowling and rodeos has no place on the internet,” said Michael Gallagher, CEO of the group in a press statement. “Today we’re going to take the steps necessary to stop the tax authority from extending that tax to interactive entertainment.”
The tax, dubbed the Cloud Tax, was announced in 2015 and quickly drew controversy. According to the Tribune, criticism from local tech firms led Chicago Mayor Rahm Emanuel to drop the rate of the business tax and exempt some startups.
In its challenge, the association points to the federal Internet Tax Freedom Act, which prohibits “discriminatory” taxes on e-commerce. The tax, for example, is not applied to gamers who buy a hard copy of a game or a download, but only to rented or streaming paid games.
Chicago also requires game-makers to collect the 9 percent fee from gamers with billing addresses in Chicago, or be liable to pay the fee to the city themselves. Gallagher told the Tribune that this constitutes an unfair burden on game makers.
A spokesman for the city of Chicago’s Law Department told the paper that the city is standing behind its interpretation.
“We do not comment on pending litigation, however this case appears to raise the same issues as another pending suit,” spokesman Bill McCaffrey said in an emailed statement. “We remain confident that the amusement tax properly applies to streaming video, music and games, and that we will successfully defend against these suits.”
The association is asking the court to rule the interpretation of the Amusement Tax illegal and stop the city from enforcing it, the paper said.
A similar suit against the law was filed in 2015 through the Liberty Justice Center, but the case is still pending.
